The BEA released revised figures for fourth quarter economic growth, indicating that the economy grew at a 3% annualized rate, a little faster than first thought. There were minor changes: a slightly smaller increase in inventories and a slightly larger increase in spending, but it still means that most of the growth was due to a build up in inventories, with final sales increasing at just over a 1% rate. On a more positive note, GDI (gross domestic income) was revised up, resulting in a higher savings rate, suggesting that consumers may be in slightly better shape than previously estimated.
This morning, information on income and spending was released, showing a slight decline in disposable income adjusted for inflation and no growth in inflation-adjusted consumption. That means consumption has been flat for 3 straight months. Given that disposable income is just barely keeping pace with inflation, consumption has been and is expected to continue to remain constrained. Meanwhile, inflation as measured by the PCE index declined to 2.4% over the last year, after approaching 3% last summer. Excluding food and energy, inflation was about 2% over the last 12 months.
Add it up and it continues to tell the same story: a sluggish recovery as consumer spending is held back by sluggish growth in income and continued deleveraging.
